24(1) 920265
A. Humenuk
(613) 957-2134
Attention: 19(1)
April 6, 1992
Dear Sirs:
Re: Attribution
We are replying to your letter of January 23, 1992 concerning the attribution rules and the definition of "substituted property" as used in the Income Tax Act for the 1978 taxation year.
You describe a situation where one spouse has transferred property to the other spouse in 1978 such that section 73(1) of the Act applied. The recipient spouse subsequently transferred that property to a holding company in exchange for redeemable preferred shares, electing under subsection 85(1) of the Act to transfer the property at the adjusted cost base of the property transferred. At the same time as the transfer, the recipient spouse also subscribed for common shares of that holding company. You have asked whether attribution will apply to any capital gain that might arise on the ultimate disposition of those common shares.
In reviewing the series of transactions described above as a whole, it is our view that a reasonable argument can be made that the common shares as well as the preferred shares are substituted property for the property transferred into the holding company. Accordingly, it is our view that attribution will apply to the common shares as well as to the preferred shares.
We trust our comments will be of assistance to you.
Yours truly,
J.A. Szeszyckifor DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch